Under terms of the agreement announced Monday, Dell will pay $27.75 a share, which places a total equity value on Compellent of $960 million. If Compellent's cash is subtracted, than the deal is worth $820 million, Dell says. The boards of both companies have approved the deal, which will have to be OK'd by Compellent shareholders. The agreement is expected to close in early 2011.
The deal follows three months after Dell lost a bidding war with HP for storage vendor 3PAR, which HP bought for more than $2.3 billion. Dell has been looking to expand its data center solutions unit through acquisition. The company said in June that it wanted to generate $30 billion in sales from servers, storage, and networking gear used in data centers by the end of fiscal 2014 from the $17 billion expected at the end of the current fiscal year, ending in January.
Dell and its rivals are building up their storage portfolios as the amount of information gathered and stored by companies increases annually. With demand for storage technology growing, Dell sees an opportunity to raise profitability. Storage-related sales carry much higher margins than the PC desktops and laptops that made up 56% of Dell's revenue in the third quarter.
Compellent sells storage software and hardware that's viewed as particularly useful to companies building cloud computing environments, a major IT growth area. Compellent's third-quarter results reflect the company's success. Compellent reported a 15% increase in revenue as its number of customers grew from 179 to 2,303.
Analysts see Compellent as offering mid-market technology that will require lots of work on Dell's part to get it ready for potential enterprise customers. In addition, Compellent now gives Dell three different products to sell to the same customer base. The other two products are Dell-owned EqualLogic and Clariion, which Dell sells through a partnership with EMC.
While some analysts say offering three similar products at one time is likely to confuse potential customers, Dell argues that it will be offering a broader choice and will be able to meet the needs of most data center environments. Dell also is denying that it will push its products, which carry higher profit margins, over EMC's. "We'll continue to move forward with EMC," a company spokesman told InformationWeek.